Amendments To Federal Rule 23: Get Ahead Of The Coming Changes To Class Actions
The U.S. Supreme Court recently approved significant amendments to Rule 23 of the Federal Rules of Civil Procedure, which governs federal class actions. These amendments focus primarily on notice, settlement, and objection requirements and procedures, providing parties and courts with much needed guidance.
Unless Congress rejects any of these changes, the amendments will take effect on December 1, 2018. Employers facing federal class actions, however, would be well-served to understand and prepare for these changes in advance of the effective date.
Modernizing Class Notice
The pending amendments to Rule 23 expressly recognize contemporary communication methods of providing notice to individual class members. Under the current rule, courts must direct to class members “the best notice that is practicable under the circumstances.” The amendment clarifies that such notice “may be by United States mail, electronic means, or other appropriate means.” The amended rule does not specify any particular means as preferred.
Traditionally, courts read Rule 23 to require notice by first class mail. Over time, however, courts have authorized notice by other forms of communication, such as electronic mail, for the sake of efficiency and reducing costs. The amendment acknowledges this development and normalizes the use of modern technology as a likely conduit of class notice. Indeed, the addition of “electronic” or “other appropriate means” should prompt parties to think more broadly about potential avenues of communicating notice, such as through text messages or social media.
Notwithstanding this proposed change, the comments to the amendments note that it is important to remember that in some cases, class members may have limited or no access to email or the internet. The comments therefore caution that electronic means should not become a default mode to match modern times; rather, parties and courts should think critically about what means would be most appropriate on a case-by-case basis. Factors to consider include, but are not limited to, the age, socioeconomic status, and geographic locations of the potential class members.
In addition, the comments note that parties should think critically about the proper form of notice to class members. The goal is to sufficiently enable potential class members to make an informed decision as to whether they should opt out. Courts and parties are therefore encouraged to consider using class notice experts or professional claims administrators in devising the proper form of notice.
Standardizing The Settlement Approval Process
The Rule 23 amendments also set forth certain procedures for proposed class settlements. Importantly, the new rule formalizes the process for presenting a settlement offer to the court, requiring that it be based on grounds sufficient to enable the court to determine that the proposed settlement will earn final approval after notice is made to the class. The amended rule expressly sets the standard a court should use in determining whether to send notice: that the court likely will be able to both approve the settlement proposal and certify the class for purposes of judgment on the proposal, if it has not yet done so already.
The amendments also outline factors that courts must consider when approving a settlement and, in particular, determining whether a proposed settlement is “fair, reasonable, and adequate.” Specifically, courts must consider the following:
- Whether “the class representatives and class counsel have adequately represented the class”;
- Whether the settlement proposal was “negotiated at arm’s length”;
- Whether the relief provided for the class is adequate, taking into account several factors, such as costs, risks, the effectiveness of the proposed method of distributing relief to the class, and the terms of any proposed award of attorneys’ fees; and
- Whether “class members are treated equitably relative to each other.”
This updated language attempts to both standardize and condense the sometimes lengthy list of factors for assessing proposed settlements that various courts have developed over the past several decades. The amendments therefore focus on the core concerns of procedure and substance that should guide courts in considering proposed class-action settlements.
Class Members’ Objections
The amended Rule 23 also establishes new procedures with respect to objections to proposed settlements. Under the new rule, any objection must indicate whether the objection asserts interests of only the objector, or of some subset of the class, or of all class members. Objections must otherwise be stated “with specificity.” Recognizing the importance of good-faith objections to the settlement process, however, the comments state that courts should take care to avoid unduly burdening class members who wish to object.
Further, an objector is no longer required to obtain court approval to withdraw an objection, but rather may do so freely upon concluding that the objection is not justified. However, the amended rule states that a party is required to disclose and obtain court approval for any payment or “other consideration” in connection with either forgoing or withdrawing an objection, or forgoing, dismissing, or withdrawing an appeal from a judgment approving a settlement proposal. The comments state that the term “consideration” should be broadly interpreted, particularly when the withdrawal includes some arrangement beneficial to the objecting party’s counsel.
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If you have any questions about the substance or implications of the pending amendments to Rule 23, or if you would like assistance with any other litigation matter, please do not hesitate to contact one of our experienced litigation attorneys.